91st Congress 1
2d Session /
COMMITTEE PRINT
STAFF DATA
SUMMARY OF MINOR HOUSE-PASSED TAX,
TARIFF, AND VETERANS BILLS
PENDING BEFORE THE COMMITTEE ON
FINANCE
Prepared for the Use
OP THE
COMMITTEE ON FINANCE
UNITED STATES SENATE
Russell B. Long, Chairman
NOVEMBER 24, 1970
Printed for the use of the Committee on Finance
52-187
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 1970
Jts-(7-7^
IB
COMMITTEE ON FINANCE
RUSSELL B. LONG, Louisiana, Chairman
CLINTON P. ANDERSON, New Mexico
ALBERT GORE, Tennessee
HERMAN E. TALMADGE, Georgia
EUGENE J. McCarthy, Minnesota
VANCE HARTKE, Indiana
J. W. FULB RIGHT, Arkansas
ABRAHAM RIBICOFF, Connecticut
FRED R. HARRIS, Oklahoma
HARRY F. B YRD, Je., Virginia
Tom Vail, Chief Counsel
Evelyn R. Thompson, Asswtomi Chief Clerk
(H)
JOHN J. WILLIAMS, Delaware
WALLACE F. BENNETT, Utah
CARL T. CURTIS, Nebraska
JACK MILLER, Iowa
LEN B. JORDAN, Idaho
PAUL J. FANNIN, Arizona
CLIFFORD P. HANSEN, Wyoming
CONTENTS
Part One — Miscellaneous Tax Bills
Page
1. Wageringtax (S. 1624) 3
2. Interstatetaxation(H.R. 7906) 5
3. Distilled spirits (H.R. 10517) 7
Amendment suggested by Senator Holland 11
Proposed amendment; text of S. 2468 12
4. Tax treatment of interest on Farmers Home Administration insured
loans (H.R. 15979) 14
5. Working capital fund, Department of the Treasury (H.R. 16199) 15
6. Cemetery corporations (H.R. 16506) 16
7. Manufacturers claims for floor stocks refunds (H.R. 17473) 17
8. Skjgacking; airline tickets and advertising (H.R. 19444) 18
9. Extension of highway trust fund (title III of H.R. 19504) 19
Part Two — Miscellaneous Tariff Bills
1. Articles intended for preventing conception (H.R. 4605) 25
2. Duty suspension on manganese ores (H.R. 6049) 25
3. Bells for Smith College (H.R. 68.54) 26
4. Duty on parts of stethoscopes (H.R. 7311) 27
5. Duty-free treatment for certain sample materials (H.R. 9183) 27
6. Shrimp vessels (H.R. 16745) 28
7. Duty suspension on certain electrodes (H.R. 16940) 29
S. Duty treatment on certain previously exported aircraft (H.R. 17068) 29
Part Three — Miscellaneous Veterans Bills
Investment of national service life insvirance trust funds in Veterans'
Administration-financed housing (H.R. 18253) 33
Group mortgage insurance for severelj^ disabled veterans eligible for
special housing benefits (H.R. 18448) . 37
(in)
Pi
HI
PART ONE
Miscellaneous Tax Bills
(1)
1. Wagering Tax
(S. 1624)
(Reported by the Senate Judiciary Committee on May 5, 1970)
Present law. — Under present law, a 10 percent excise tax is imposed
on certain types of wagers and an annual occupational tax of $50 is
imposed on various individuals engaged in businesses involving such
wagers. Information submitted to the Internal Revenue Service
pursuant to the provisions of these taxes is made available to local
and Federal law enforcement agencies.
Problem. — In 1968, the Supreme Court, m Marchetti v. United States,
390 U.S. 39 and Grosso v. United States, 390 U.S. 63, held that persons
engaged m criminal gambling activities may validly refuse to comply
with the wagering taxes by asserting the self-incrimination privilege
of the fifth amendment to the Constitution. Although a modification
in applicable law was made subsequent to the decisions in Marchetti
and Grosso which arguably cleansed the wagering taxes of their un-
constitutional aspects, the Internal Revenue Service has taken the
position that most persons subject to the wagering taxes can still
validly invoke the constitutional privilege, and the Service has thus
virtually ceased enforcement activities with respect to the taxes.
Solution proposed in the hill. — S. 1624 was introduced on March 20,
1969, by Senator Hruska and was referred to the Committee on the
Judiciary, which reported it, with amendments, on May 5, 1970,
whereupon it was referred to the Committee on Finance. H.R. 322,
5223, 6199, 7599, 10087, and 10790 are identical with S. 1624 as
introduced by Senator Hruska.
The most significant feature of the bill is its prohibition of dis-
closure of wagering tax information received by Treasury Department
personnel, except in connection with the administration or enforce-
ment of the wagering taxes. This prohibition should cure the constitu-
tional infirmities found by Marchetti and Grosso.
Additionally, the bill makes the follomng other changes in existing
law:
1. The annual occupational tax is increased from $50 to $1,000.
Additional categories of persons (pickup men, punchboard operators
and other employees of a gambling enterprise) not presently subject
to this tax are made subject to an annual tax of $100.
2. State or locally licensed gambling which is subject to a State or
local excise tax is exempted from the 10 percent wagering tax and is
not treated as wagering for purposes of the occupational tax.
3. The bill provides severer criminal penalties for noncompliance
than those contained in existing law, and requhes the sentencing
judge to set forth his reasons for imposing any sentence which does
not include incarceration. The proposal would make any willfid failure
to pay the wagering taxes a felony punishable by up to five years
impiisonment and/or a fine of up to $10,000 or three times the tax
due, whichever is gi-eater. Additionally, the mere non])ayment of
(3)
taxes would be punishable as a misdemeanor by imprisonment of up
to one year and/or a fine of up to $5,000 or twice the tax due, which-
ever is greater.
4. The bill provides immunity from prosecution for testimony
which is compelled over an objection based on the self-incrimination
privilege.
Problems presented in the hill. — The principal problem presented by
the bill deals with the exemption for licensed gambling Avhich is
subject to a State or local excise tax. It has been pointed out that
under the provision as written, the imposition of a nominal State
excise tax could prevent the collection of a substantial amount of
Federal tax. The Administration has contended that the exemption
is irrational and also may present constitutional problems under the
doctrine of United States v. Constantine, 296 U.S. 287 (1935).
An Administration-favored alternative is to provide a credit against
Federal tax for any State or local excise taxes paid which are similar
to the wagering taxes. This alternative has been opposed by legitimate
bookmaking operations located in Nevada. These interests point out
that they are the only legitimate form of gambling presently subject
to the tax, and they contend that, since they collect the tax from the
bettors, the tax has the efi'ect of reducing theh business and helping
the business of illegal bookies who do not pay the Federal tax.
Rebuttal of this argument may be made on two grounds. First, the
wagering tax, since its inception in 1951, has always applied to legit-
imate bookmakers and the history of their profitability indicates that
their businesses were not greatly hurt by the application of the tax.
Secondly, it is highly doubtful that the exemption of legitimate book-
makers from the tax would serve to eliminate illegal bookmaking, since
illegal bookmakers would retain the competitive advantage they
presently have of being able to extend credit to bettors.
The Internal Revenue Service is presently studying the problem of
exemption versus credit, and the staff expects to receive a report
shortly.
A second problem with respect to the proposed legislation arises from
the fact that section 6107 of the code was repealed on October 22, 1968.
This section (which was repealed after the decisions in Marchetti and
Grosso) provided for the public inspection of the names of all persons
who paid any of the special taxes under subtitle D or E, which in-
cluded the occupational tax on wagering. The committee report with
respect to the repeal of this section noted that this provision was
subjected to criticism m the Supreme Court decisions in Marchetti and
Grosso. The report in part states that the repeal of this section was
intended to make it clear that it was not the desire or intent of Congress
that the system of Federal taxation be rendered ineffectual because a
State or local jurisdiction has a law rendering aspects of the activity
illegal.
This (and subsequent statements in the report) suggests that
perhaps the repeal of section 6107 has removed the constitutional
problems involved in the enforcement of the wagering taxes. In the
Marchetti and Grosso cases, the Government had argued that the court
should permit continued enforcement of the wagering taxes by impos-
ing judicial restrictions on the use of information obtamed through
compliance with the taxes. The court had imposed such restrictions
in the past with respect to other matters but refused to do so in the
case of the wagering cases apparently because of the existence of
section 6107, which specifically provided for the public inspection
of the names of those paying the occupational taxes. The court ap-
parently discerned a congressional pattern in the legislation and
refused to modify the pattern for fear that this would do more harm
to congressional intent than would the striking down of the entire
statutory scheme. The repeal of section 6107 should indicate to the
court that its view in this matter was not in accord with the con-
gressional view and it might well, if the matter were reconsidered
now that section 6107 has been repealed, decide to impose judicial
restrictions rather than strike down the entu-e statutory scheme.
Administration position. — The Internal Revenue Service recognizes
the possibility set forth above but apparently even with the repeal
of section 6107 prefers the new legislation rather than seeking prosecu-
tion of a new test case under existing law. As previously indicated
the administration prefers the tax credit approach, rather than an
exemption, for State and local taxes imposed on legal gambling.
2. Interstate TaxatioD
(H.R. 7906)
(Passed the House on June 25, 1969)
Present law. — In two companion cases decided in 1959, the Supreme
Coiu-t held that a company engaged exclusively in interstate commerce
in a State could be required to pay an income tax to that State. Shortly
thereafter the Court declined to review a State court decision which
upheld an income tax on a company whose only contacts in the State
were the solicitation of orders. In response to these decisions, Pubhc
Law 86-272 was passed which prohibited State income taxation in
situations involving the mere solicitation of orders in a State by sales-
men or independent contractors. This legislation also authorized a
congressional study of this problem.
The next year, 1960, the Sv.preme Court decided the Scripto case
which held that a seller who J) as only independent representatives
soliciting orders in a State may be required to collect a use tax on
sales. This decision prompted the enactment of Public Law 87-17
which expanded the previously authorized congressional study of State
taxation from income taxes to I'.ll taxes.
Problem. — Those who suppojt legislation in this area contend it is
necessary for Congress to establish jiu-isdictional standards in order to
obtain a national policy regarding State and local taxation of multi-
State business. These standards are needed, it is urged, to resolve
conflicting laws and to remove burdens which have been placed on
interstate commerce. Proponents of legislation regulating multistate
business have also stated that in some instances under present law,
the cost of compliance with State and local tax laws actually exceeds
the amount of the tax habiUty involved, and that small businesses
located in one State are at times subjected to taxes by States in which
they do not own property or have any employees.
Solution proposed in the bill. — Under jurisdictional limitations estab-
Ushed in the bill unless a taxpayer has a "business location" in a State
the State would not be allowed to: (1) impose a net income tax, a
franchise tax measiu-ed by net income, or a capital stock tax (on other
than an excluded corporation) ; (2) require a person to collect a sales
52-1S7— 70 2
6
or use tax mth respect to sales of tangible personal property, or
(3) impose a gross receipts tax mth respect to sales of tangible personal
property. (However, persons making household deliveries in a State
could be required to collect a sales and use tax.)
An excluded corporation — which would not be protected by a juris-
dictional limitation on income, franchise, or capital stock taxes —
is defined as any corporation that has an average annual income in
excess of $1 million, is a personal holding company, or receives more
than 50 percent of its ordinary gross income from utiUty or trans-
portation services, insurance contracts, banking, or from dividends,
interest or royalties.
A person would be regarded as having a business location in a
State if he owned or leased real property in a State, had one or more
employees "located" in the State, or regularly maintained stock or
tangible personal property in the State for sale in the ordinary course
of business. An employee would be regarded as being located in a
State if his service is entirely performed wdthin the State, his service
is performed ^^dthin and outside of the State (but the service outside
the State is incidental to service within the State), or his service is not
performed enthely or primarily in the State (but some service is per-
formed in the State and his base of operations is in the State).
Possible alternatives. — The Council of State Governments has pro-
posed a Multistate Tax Compact which generally calls for voluntary
State action mth respect to interstate taxation. The Compact would ,
establish a Multistate Tax Commission to handle matters of adminis- I
tration and arbitration, and would provide taxpayers an election to "
apportion income under either the method provided by State law or
by use of a model act, the Uniform Division of Income for Tax Pur-
poses Act (which is substantially adopted by the Compact). A group
of State tax administrators and business representatives, known as
the Ad Hoc Committee, has drafted a bill which would make a number
of modifications in the Compact which is intended to codify existing
jurisdictional standards and to provide: (1) an optional uniform
apportioning formula for income and capital stock taxes; (2) standards
for consolidation or combination of affiliated corporations for income
tax purposes; (3) standards for sales and use taxes; and (4) procedures
for the settlement of disputes, with the Multistate Tax Compact
providmg the means for administration of the Federal legislation.
It now appears tiiat the so-called Ad Hoc Bill is not regarded as a
satisfactory solution by at least some State tax administrators.
A number of bills dealing witli this subject have been introduced
including —
(1) S. 916 introduced by Senator Kibicoff. This bill, while
similar to H.R. 7906, is designed to remove the distinction that
the bill makes between large and small corporations by not
limiting the application of the bill to corporations whose average
annual income does not exceed $1 million. Another major differ-
ence between this bill and the House-passed bill is that it would
not permit the application of what is called the unitary business
concept — which requires that income from an affiliate be included
in the measure of tax income even though the affiliate is not
itself subject to the jurisdiction of the taxing State.
(2) S. 2804 introduced by Senator Magnuson for himself and
Senators Anderson, Bennett, Burdick, and Jackson. This bill is
designed to permit the several States to enter into a compact
relating to interstate taxes, to provide a formula for taxing multi-
state taxpayers for States not entering into the compact, and to
require certain sellers to collect sales and use taxes.
(3) S. 3368 jointly introduced by Senators Murphy and
Cranston. This bill is designed to provide a uniform system for the
application of sales and use taxes to interstate commerce. Under
its provisions, a State or political subdivision could not require a
person to pay or collect a sales or use tax with respect to inter-
state sales of tangible personal property unless that person, (1) has
a business location in the State, or (2) regularly solicits orders for
the sale of tangible personal property by salesmen, solicitors, or
representatives in the State — unless his activity in the State
consists solely of solicitation by direct mail or advertising in
newspapers, by radio or television, or (3) regularly engages in the
delivery of property in the State other than by common carrier or
U.S. mail.
3. Distilled Spirits
(H.R. 10517)
(Passed the House on July 6, 1970)
The bill makes a series of amendments to the distilled spirits
provisions of the Internal Revenue Code. In general, the changes are
designed to remove restrictions that are no longer needed for effective
enforcement of the revenue and regulatory aspects of the Code.
1 . Accidental losses of distilled spirits
Present law. — The internal revenue tax on distilled spirits generally
is determined when the spirits are withdrawn from bond. Refund
(credit, abatement or remission) of this tax may be made when distilled
spirits which are withdrawn for rectification or bottUng are lost, either
by accident during removal to the bottling premises or by flood, fire,
or other disaster before removal from the premises of the distilled
spirits plant (to which the si)irits were removed from bond). In ad-
dition, refund, etc., may be made as to losses (including those from
accidents or evaporation) occuring before the completion of the bot-
tling process if they resulted from authorized rectifying or bottUng
procedures.
Problem. — It is believed that present law is unnecessarily restrictive
with regard to losses occurring on the distilled spirits plant premises.
Solution proposed in the bill.— The bill would allow refund, etc., of
the basic distilled spirits tax ($10.50 per gallon, imposed by sec.
5001(a)(1)) if an accidental loss occurs on the distilled spmts plant
premises in those cases where the loss from a single accident amounts
to at least 10 proof gallons. As a practical matter, the most significant
effects of this change would be to permit refund, etc., of the tax
whether or not the loss is incident to the bottUng process, and also
even though the loss may occur after completion of that process.
2. Voluntary destruction of distilled spirits
Present law. — Present law permits the Internal Revenue Service
to refund (credit, abate or remit) the $10.50 per gallon distilled spirits
tax where voluntary destruction of distilled spirits occurs before, but
not after, the completion of bottling. The destruction may occiu- only
where the proprietor finds the spirits unsuitable for use.
8
Voluntary destruction may be accomplished under these provisions
only after application to the Internal Revenue Service for the destruc-
tion, after gauging to accurately determine the amount to be de-
stroyed, and where the destruction occiu"s under Service supervision.
Problem. — It is believed that the present provisions regarding vol-
untary destruction of tax-paid or tax-determined distilled spirits are
unnecessarily restrictive, in light of the existing authority_ of the
Service to require advance application, gauging, and supervision.
Solution proposed in the hill. — The hill would remove the requu-e-
ment that the decision to destroy the distilled spirits must be made
before completion of bottling, but continues to require that at the
time of destruction the distilled spirits be on the bottling premises
to which they had been removed from bond for the refund, etc., to be
available. Voluntary destruction is to be permitted whether those
distilled spirits are on the bottling premises because: (1) bottling
had not been completed (as under present law) ; (2) bottling had been
completed but the bottled distilled spirits had not been removed from
the premises; or (3) the distUled spirits had been removed but were
returned to the bottling premises to which they had been originally
removed from bond. To facilitate administration the bUl retains the
requirement that the distilled spirits be on the bottling premises to
which they were removed from bond, rather than on other bottling
premise.
Present law permits refund, etc., of only the basic SlO.SO-per-gallon
distilled spirits tax (sec. 5001(a)(1)) in the case of voluntary destruc-
tion. The bill provides that the rectification tax (30 cents-per-gallon or
$1.92-per-gallon, depending upon the applicable provisions) also may
be refunded, etc., in the case of voluntary destruction, in addition to
the basic tax.
S. Returning of distilled spirits
Present law. — Under present law, distilled spirits returned to botthng
premises are not ehgible for refund (or credit, abatement or remission)
of taxes on account of the various types of losses allowed under
present law (sec. 5008). Moreover, at present distilled spirits may be
returned to bonded premises (i.e., the point before which a tax is
determined or paid) only if they had been withdrawn in bulk con-
tainers, are later found unsuitable before removal from their original
containers, and, immediately upon return, are destroyed, redistilled,
denatured, or mingled.
Problem. — It is believed that appropriate administration of the
distilled spirits tax and regulatory provisions does not require such
stringent limitations on the return of distilled spirits to bonded prem-
ises. So long as there is an opportunity for adequate supervision by
Internal Revenue Service personnel and proper gauging and record-
keeping of the distilled spirits returned, the returns ought to be per-
mitted and, in general, treated thereafter as though the returned
distilled spirits had never left the bonded or bottling premises.
Solution proposed in the bill. — The bill would permit distilled spirits
returned to bottling premises to be treated, for purposes of the various
loss provisions (under sec. 5008(c)) as though they had not been re-
moved from the bottling premises. The bill also permits distilled
spirits to be returned to bonded premises (with refund etc., of tax
under sec. 5008(d) of the code) and thereafter to generally be treated
9
as though they had not left the bonded premises. Distilled spirits to
qualify under this provision are to be returned only to the bottling
premises from which they were removed.
4. Distilled spirits for use of foreign embassies, legations, etc.
Present law.- — Distilled spirits may be withdrawn from bond tax-
free for export. Distilled spirits upon which tax has been paid or
determined may be exported and the owner may receive repayment
of the tax by way of drawback.
Imported distilled spirits are subject to the same taxes that would
have been paid on those items had they been produced in the United
States. However, items may be imported tax-free for the official or
family use of foreign governments, public international organizations,
and certain individuals associated with those governments and
organizations. This exemption from tax on imported items does not
extend to exemption from the internal revenue taxes on a domestically
produced item of the same or similar type.
Problem. — Presently, if a bottle of distilled spirits is exported and
then returned to the United States and withdrawn from customs by
representatives of a foreign government, then neither the internal
revenue tax nor the customs duty need be paid. However, it normally
is not economically feasible to export an item and then import it.
Also, such transactions on a significant scale would cast doubt upOil
the bona fides of the original exportation and might result in a de-
termination that the distilled spirits should have been taxed in the
first place.
In contrast, a bottle of distilled spirits produced in a foreign country,
imported into the United States, and withdrawn for proper purposes
by a representative of a foreign government would bear less trans-
portation costs and would clearly be exempt from both customs
duties and our internal revenue taxes on distilled spirits. The result
is that representatives of foreign governments find it significantly
less expensive to import foreign distilled spirits than to buy domestic
distilled spirits.
Solution -proposed in the bill. — The bill specifies that distilled spirits
bottled in bond may be mthdrawn from bonded premises and trans-
ferred to customs bonded warehouses without payment of tax for the
use of foreign governments, pubHc international organizations, and
individuals who are entitled to withdraw imported distilled spirits
from these warehouses free of tax. Distilled spirits upon which tax
has been paid (or determined) also may be entered into one of these
warehouses for the same purpose. Where this is done they are to be
treated as having been exported (and thus eligible for drawback of
tax) at the time they are entered into the warehouses.
Domestic distilled spirits which have been entered into customs
bonded warehouses under these profusions may be withdrawn from
those warehouses free of tax for consumption in the United States by
representatives of the foreign goverimients, etc., who are entitled to
withdraw from such warehouses free of customs duties.
Problems presented in the provision. — The District of Columbia
Retail Liquor Dealers Association has been concerned v/ith this
provision, apparently, because of the possibihty that the domestic
distilled spu'its withdrawn by the embassies free of Internal Revenue
tax may find their way into taxable commerce by lesser emjiloyees in.
rs
10
the embassies reselling the distilled spirits illegally. The same problem,
of course, exists now in the case of imported distilled spirits which
presently can be obtained free of tax in any volume embassy personnel
desire. A problem has to some extent existed in this area in the past
but it is not clear why making domestic distilled spirits available to
the embassies free of tax would worsen the problem. Conceivably,
this might make it somewhat easier for embassy employees to obtain
distUled spirits (although this is not at all certain) . The Retail Liquor
Dealers Association also pointed out that in England and Italy our
Embassy personnel, apparently, obtain alcoholic beverages free of
tax only under a quota system.
It would appear that the problem raised by the Retail Liquor
Dealers Association could be met by a statement in the committee
report requiring the Internal Revenue Service to keep a record of
distilled spirits (domestic or imported) which the embassies obtain
free of tax, and if any unusual volume was obtained free of tax to
investigate the matter to see whether any of the alcohol is finding its
way into taxable commerce.
6. Involuntary liens on distilleries, etc.
Present law. — The basic $10.50-per-gallon tax on distilled spirits is
a first lien on the distillery used for producing the distilled spirits,
the stills, vessels, and fixtures in the distillery, the land on which the
distillery is located, and any buildings on the land. If any part of
that property is encumbered by any other lien, then the distiller is
required to file a penal bond in an amount equal to the appraised
value of the property subject to that other lien, up to a maximum of
$300,000. This filing has the effect of lifting the statutory lien.
Problem. — A consequence of the present law is that if property
subject to the tax lien on the distillery (described above) is encumbered
by a judgment lien for any amount, even if very small in comparison
with the value of the property and even if the judgment is almost
certain to be satisfied entirely out of other assets of the distiller, then
the distiller must file a bond for up to $300,000. This penal bond
provision results at times in requiring expenditures to secure a bond
in an amount that is unreasonable relative to the protection needed
by the Government. For example, a $100 mechanic's lien may result
in payment of many times that amount in order to secure a $300,000
bond.
Solution proposed in the hill. — The bill provides that if a judgment or
other lien is imposed on the distillery property upon which the United
States has a first lien (under sec. 5004(b) (1) of the code) for the $10.50-
per-gallon distilled spirits tax, and this judgment or other lien is
imposed without the consent of the distiller, then the distiller may
satisfy the additional penal bonding requirement to protect the United
States by filing a bond in the amount of the judgment or other lien.
This would have no effect in the case of judgments or other liens
larger than $300,000. However, in the case of smaller judgments or
liens it would permit the distiller to file (and to pay the cost of) a coni-
mensurateb' smaller bond so long as the bond is laige enough to assure
that the interests of the United States have not been decreased by the
judgment or other lien.
11
6. Bottling in bond
Present lata. — Altliougli most bottling of distilled spirits is done on
the bottling premises after the distilled spirits have been Avithdrawn
from bond on payment (or determination) of tax, present law permits
bottling in bond under certain circumstances. The bottling of distilled
spirits in bond must be done under the supervision of assigned Internal
Revenue Service personnel, the spirits must be at least 100 proof if
for domestic use and at least 80 proof if for export, the spirits must
have been kept in bond in wooden containers at least 4 years, and the
other conditions and requirements of section 5233 of the code must
bo met.
Problem. — Many distUlers do not have a sufficient volume of opera-
tions to economically maintain bottling facilities within the bonded
premises in addition to, and separate from, the facilities on their
bottling premises.
Solution proposed in the bill. — The bill would permit a product to be
stamped and labeled as distilled spirits bottled on bonded premises
even though a projmetor of a distilled spirits plant uses bottling:
facilities outside of his bonded premises, but only if the bottling occurs;
under the same supervision required for, and in accordance with the;
conditions and requirements applicable to, distilled spirits bottled ifl
bond. The taxes on distilled spirits bottled under these provisions will
continue to be determined on withdrawal from bonded premises and
before bottling.
Administration position. — The Treasury Department has no objec-
tion to the enactment of this bill.
Transfer of Distilled Spirits Imported or Brought Into the
United States
(Amendment suggested by Senator Holland)
Present law. — In general, both customs duty and internal revenue
taxes on imported distilled spirits are paid when those spirits are
withdrawn from customs custody. However, present law (sec. 5253
of the Code) permits the withdrawal from customs custody without
the payment of internal revenue taxes if they are transferred in these
bulk containers (or by pipeline) to internal revenue bonded premises
of a distilled sphits plant. This permits the deferral of the time for
payment of the distilled spirits tax in the case of imports until removal
from internal revenue bond rather than from customs custody.
Problem. — This provision applies to distilled spirits "imported" into
the United States but does not apply to distilled spirits brought into
the United States from Puerto Rico and the Virgin Islands, since
this is not classified as an import.
Solution proposed in the amendment. — The amendment would con-
form the treatment of distilled spirits brought into the United States
from Puerto Rico and the Virgin Islands with distilled spirits brought
into the United States from elsewhere. In effect, this amendment
treats distilled spirits brought into the United States from Puerto
Rico and the Virgin Islands as imported. This treatment would be
sirnilar to that accorded tobacco products under the tobacco tax pro-
visions (sec. 5704(c) of the Code).
12
Administration position. — Internal Revenue Service personnel have
no objection to the enactment of this amendment.
Taxes and Regulatory Provisions Regarding Beer
(Proposed Amendment; Text of S. 2468)
This bill, S. 2468, deals with a number of the Internal Revenue Code
regulatory provisions regarding beer. In general, it removes or liberal-
izes those regulatory restrictions which are believed to be no longer
necessary for proper enforcement of the beer tax provisions.
1 . Research and development
Present law. — Present law permits removal of beer from a brewery
without payment of tax for laboratory analysis.
Problem. — Under present law, if beer is removed from a brewery for
research and testing of processes, systems, materials, or equipment
relating to beer or brewery operations, then a tax is required to be paid
even though the beer would never be used in commerce.
Solution proposed in the bill.' — The bUl would permit beer to be
removed from breweries, without payment of tax, for use in research,
development, or testing of processes, systems, materials, or equip-
ment relating to beer or brewery operations. The removals would be
subject to such conditions as the Internal Revenue Service would
prescribe and could not be used for consumer testing and other
market analysis.
2. Returns of beer
Present law. — Present law requires that beer be returned to the same
brewery from which it was removed in order for the brewer to obtain
back the taxes he had paid on removal. If the beer is returned the same
day, then the brewer may offset the returns from the amounts treated
as removed on that day; if the beer is returned on another day, then
the brewer must file a claim for credit or refund.
Problem.. — At times, return to another brewery of the same brewer
may involve less transportation cost and make for more efficient opera-
tion than retmii to the same brewery from which the beer was
removed. However, in such a case the brewer is not entitled to receive
back the taxes imposed upon the original removal from the brewery.
Also, under present law two methods are used to make the brewer
whole for the taxes imposed upon the removal from the brewery,
depending upon whether the return to the brewery is on the same
day or on a different day. Because of the greater simplicity of the offset
procedure, and also due to the fact that the benefit of an offset may be
obtained much more quickly than a claim for refund or credit, the
present procedure results in attempts to return excess orders to a
brewery before the close of business of the day the truck left the
brewery with the excess beer.
Solution proposed in the bill. — The bill would facilitate efficient
transportation arrangements by permitting letunis to be made to any
brewery q-a ued by the bre^ver who had removed the beer and by using
the offset procedure to permit the brewer to recover the taxes imposed
at the time of removal, whether or not the return was on the same day
as the removal.
13
3. Thefts, etc.
Present law. — Under present law, no credit or refund of tax is
permitted in the case of thefts of beer. Credit or refund of tax is per-
mitted in the case of other losses or destruction before transfer of title
to any other person.
Problem.— It is suggested that these provisions are unduly restrictive
in two respects. First, it is difficult to see why the beer must be actually
destroyed in those cases where it is rendered unmerchantable. Second,
it would appear appropriate to allow a credit or refund of the tax
where there is a theft of the beer which does not involve either the
brewer or persons with whom he deals in the sale of the beer.
Solution proposed in the bill. — The bill would permit credit or refund
where the beer is rendered unmerchantable by fire, casualty, or Act
of God, even though the beer is not actually destroyed. The bill also
permits credit or refund in the case of theft where the theft occurs
without the involvement of the brewer or persons he deals with in
regard to that beer or employees of any such persons.
4. Bonds
Present law. — Under present law, a brewer is required to file a new
bond for tax liability every four years.
Problem. — The continuation of an existing bond would normally be
expected to provide the same protection to the Government as would
a new bond. Usually, it is more costly to obtain a new bond than it is
to continue an existing bond.
Solution proposed in the bill. — The bill would permit the bonding
requirement to be satisfied by continuation of an existing bond, with
such continuation being subject to Government approval in the same
manner as is the case with regard to a new bond.
5. Proximity of facilities
Present law. — Present law provides that a brewery consists of the
land or buildings described in the brewer's notice. Regulations pre-
scribe that certain requirements must be met as to continuity or
proximity of facilities; they also allow reasonably proximate loading
facilities under control of the brewer to be approved as part of the
brewery if the revenue would not thereby be jeopardized.
Problem. — It is believed that the statute should be conformed to the
regulations in this regard in order to remove any doubt that might
exist as to whether the regulations may properly be as liberal as they
now are. In addition, it is suggested that the same considerations which
now permit loading facilities to be approved as part of the brewery,
similarly justified permitting packing or storage facilities would be
approved as part of the brewery.
Solution proposed in the bill. — The bill essentially codifies the regula-
tions described above except that it permits packing and storing facili-
ties to be approved as part of the brewery under the same circum-
stances that apply under present regulations to loading facilities.
6. Bottling facilities
Present law.— Vnder present law, bottling of beer and cereal
beverages (but not filling of casks or barrels) must be done in a separate
portion of the brewery designated for that pm'pose.
52-187-
14
Problem. — This requirement at times results in uneconomic physical
arrangements of brewery facilities, to an extent not required for
oprper administration of the tax provisions.
Solution proposed in the hill. — The bill would eliminate the require-
ment of separate facilities for bottling of beer and cereal beverages
and would make other minor definitional changes to simplify the
present statutory provisions without changing the substance of those
provisions. The bill also would eliminate definitions of "bottle" and
"bottling" and would add in their place definitions of "package"
and "packaging". These new definitions would be needed because
of the elimination of the provisions requiring separate bottling facil-
ities but not separate facilities for filling barrels or casks.
7. Pilot brewing facilities
Present law. — At the present time regulations provide for the
establishment of experimental breweries. The statute does not deal
directly with this matter.
Problem. — It is felt that any question of the Government's dis-
cretion to permit such pilot brewing facilities off the brewery premises
should be resolved by statute.
Solution proposed in the bill. — The bill would permit the establish-
ment at the discretion of the Internal Revenue Service of pilot
brewing plants off the brewery premises for research, analytical,
experimental or developmental purposes with regard to beer or
brewery operations.
Administration position. — Apart from some suggested technical
corrections, the Treasury has no objection to enactment of this bill.
4. Tax Treatment of Interest on Farmers Home Administration
Insured Loans
(H.R. 15979)
(Passed the House on July 6, 1970)
Present law. — Under present law (sec. 306(a)(1) of the Consolidated
Farmers Home Administration Act of 1961), the Farmers Home
Administration is authorized to make conservation, land use, water,
waste disposal, and recreational loans both to governmental units and
to private bodies, and then to resell this debt to private parties as
federally insured loans. Under this program, the Farmers Home
Administration makes a loan to the unit or body and receives in return
a note or bond bearing an interest rate which by law cannot exceed
5 percent. The FHA then resells the note to private lenders, insuring
the bond's principal and interest, and pays out of its own funds the
cost of any differential between the interest rate at which the insured
securities are sold and the 5 percent or lower interest rate specified by
the securities which were acquired by FHA.
The Internal Revenue Service has ruled that in those cases where
the security originates with a local governmental unit, the interest or
other income paid on it continues to be exempt from Federal tax even
after it is resold as a loan insured by the Federal Government.
Problem. — In recent years FHA has greatly curtailed its program
of insuring and reselling loans to local governmental units, because the
Federal Government concluded that federally guaranteed tax-exempt
obligations involve a needlessly costly and inequitable method of
15
financing. It was concluded that, while the tax exemption makes it
possible to resell the insured loans at a lower interest rate than would
otherwise be possible, the loss of tax revenue resulting from the ex-
emption more than offsets the benefits of the lower interest payments.
Additionally, it was concluded that the sale of bonds which are
both tax exempt and insured by the Federal Government would give
these bonds a competitive advantage over both State and local
securities which are tax exempt but not federally insured, and also
Federal securities which are subject to Federal income tax.
Solution proposed in the hill. — The bill deals with the above problems
by providing (in an amendment to the Consohdated Farmers Home
Administration Act) that interest or other income paid to an insured
holder on an insured loan sold out of the Agricultural Credit Insurance
Fund is for income tax purposes to be included in gross income of the
recipient of the interest. This is to be effective with respect to insured
loans sold by the Federal Government after the date of enactment
of this bill.
Prohlems presented in the hill. — It has been suggested by representa-
tives of State and municipal governments that, although the purpose
of the bill is not objectionable, the approach of the bill might be
construed as a departure from the policy of not taxing interest on
State and municipal obligations. This group suggested that the bill
be amended to make the taxability of FHA insured loans a matter
of contract between FHA and the purchaser of the obhgation. As an
alternative a statement could be added to the Finance Committee
report on the bill indicating that the interest is taxable because:
(1) the purchase of the bond from FHA is considered to be the equiv-
alent of a contract between FHA and the purchaser to report the
interest for tax purposes; and (2) it is interest paid by a Federal
agency and not by a State or local governmental unit (even though
a portion of the interest payment is in effect reimbursed by interest
received by the agency on tax exempt municipal bonds) .
Administration position. — The Treasury Department and the De-
partment of Agriculture recommend the enactment of this bill.
5. Working Capital Fund, Department of the Treasury
(H.R. 16199)
(Passed the House on May 19, 1970)
Present law. — At the present time the Department of the Treasury
is performing through its "Salaries and expenses" appropriation for
the Office of the Secretary, on a reimbursable basis, various centralized
services which benefit a number of Treasuiy bureaus financed by
separate appropriations.
On the other hand, a number of other agencies of the Government,
including the Departments of Agriculture, Commerce, Health, Edu-
cation and Welfare, Interior, Labor and State utihze the working
capital fund method of financing for centralized services.
Problem. — On the basis of the experience of those Departments
which use the working capital fund method for managing and financing
centralized services, it appears that this method allows these services
to be placed on a more systematic and businesslike basis, and assists
the Department in presenting a more accurate cost-based budget, than
does the method presently employed by the Treasury Department.
16
'i
Solution proposed in the bill. — The bill would provide a working
capital fund for the Treasury Department. This would be a revolving
fund of working capital employed to finance administrative service
operations servicing more than one appropriation or activity. The fund
would finance the central buying of materials, supplies, labor, and
other services ; the holding and issuing of materials and supplies ; and
the processing of materials into other forms for use. The supplies,
materials, and services would be sold on order to customer activities
on the basis of actual cost and the fund reimbursed. The working
capital fund would provide a means for accumulating reserves to
cover the cost of repairing and replacing equipment and the stocking
of supplies under the most advantageous conditions.
The centralized services initially proposed by the Department of
the Treasury include printing and duplicating, procurement of sup-
plies, materials and equipment, and telecommunication services.
Other services would be added as specifically determined by the
Secretary of the Treasury with the approval of the Director of the
Bureau of the Budget. All such services must meet the test of being
more advantageous and economically performed as central services.
The bill places a limitation of $1 million on the capital in the
working fund which will be made up of inventories and equipment
and other assets, including any appropriations which may be made
for this purpose. The fund is expected to revolve several times during
a fiscal year.
In 1967, the Finance Committee reported a bill (H.E. 4890) which
contained provisions identical to this bill and which also contained the
Honest Elections Act of 1967. That bill was not acted on by the Senate.
Problems presented in the bill. — The bill presently refers to the
Director of the Bureau of the Budget. In view of the recent reorganiza-
tion of that office, the reference should be changed to "Director of
the Office of Management and Budget."
Administration position. — The bill embodies a recommendation of
the Treasury Department.
6. Cemetery Corporations
(H.R. 16506)
(Passed the House on June 22, 1970)
Present law. — Present law provides tax-exempt status to a cemetery
corporation which is chartered solely for burial purposes if it is not
permitted by its charter to engage in any business not necessarily
incident to its burial purpose and if no part of the earnings of the
corporation benefits any private individual.
Problem. — The Internal Revenue Service in 1969 ruled that the
operation of a crematorium was not necessarily incident to a burial
purpose and thus caused an exempt cemetery corporation operating
a crematorium to lose its tax-exempt status.
The operation of a crematorium, however, would appear to be of
the same nature as the activity which an exempt cemetery corporation
presently is permitted to carry on. In other words, human bodies may
be disposed of either by burial or by cremation; these are merely
alternative forms of accomplishing the same purpose. It does not seem
appropriate for the exempt status of a cemetery corporation to depend
upon which of these methods of disposing of bodies it utiUzes.
17
Solution proposed in the bill. — The bill modifies the tax exemption
provided by the Internal Revenue Code for cemetery corporations to
permit a cemetery corporation to operate a crematorium (either alone
or in conjunction with burial) and qualify for tax-exempt status.
The amendment made by the bill is to apply to taxable years ending
after the date of enactment of the bill.
Problems presented in the bill. — (1) Present law provides a separate
exemption for cemetery "companies" operated exclusively for the
benefit of their members or not operated for profit. However, the bill
deals only with cemetery ''corporations" chartered solely for burial
purposes which do not engage in unrelated activities, no part of the
net earnings of which inure to the benefit of shareholders. The pro-
vision relating to cemetery "companies" is not amended by the bUl.
It has been suggested that the committee report accompanying this
bill should clarify the fact that cemetery companies presently may
operate crematoriums.
(2) It also has been suggested that the committee report accompany-
ing this bill should clearly indicate the bill is not intended to affect,
either favorably or adversely, the status of activities carried on by
cemeteries, other than the operation of crematoriums.
Administration position. — The Treasury Department has no objec-
tion to the enactment of this biU.
7. Manufacturers Claims for Floor Stocks Refunds
(H.R. 17473)
(Passed the House on June 22, 1970)
Present law. — In the Excise Tax Reduction Act of 1965 (Public
Law 89-44) the Congress repealed various manufacturers excise
taxes as of June 22, 1965, and other manufacturers excise taxes as of
January 1, 1966. Floor stocks refunds were provided for previously
untaxed items that dealers held for sale on the date the tax was
repealed. Refunds to the dealers were to be made by the manufac-
turers, who were then to be reimbursed by the Treasury.
For the items on which the tax was repealed as of June 22, 1965
(or January 1, 1966, as the case may be), the dealer was to submit
a request to the manufacturer before January 1, 1966 (or July 1, 1966),
and the manufacturer was required to file a claim for refund by
February 10, 1966 (or August 10, 1966). By February 10, 1966 (or
August 10, 1966), the manufacturer was required either to have re-
imbursed the dealer for the tax that had been originally passed on to
the dealer or to have secured the dealer's written consent to the
allowance of the refund to the manufacturer.
Problem. — It appears that in several instances the 40 days allowed
by the Excise Tax Reduction Act of 1965 between the deadline for
obtaining requests from dealers and the deadline for filing of refund
claims by manufacturers was too short. In some instances, it appears
that delay was occasioned by difficulties in properly classifying the
dealers' requests in the available time, especially because of the large
number of separate taxes that were repealed by the one Act.
Solution proposed in the bill. — The bill would permit a manufacturer
who compHed ^dth all the requirements of the Excise Tax Reduction
Act of 1965 with regard to floor stocks refunds, except that he did not
file his claim by February 10, 1966 (or August 10, 1966, as the case
18
may be) , to file such a claim for refund by the ninetieth day after the
date of enactment of the bill.
Administration position. — The Treasury Department has no objec-
tion to the enactment of this bill.
8. Skyjacking; Airline Tickets and Advertising (Finance Committee
Hearing Held Oct. 6, 1970)
(H.R. 19444; see S. 4637, S. 4383)
(Passed the House on Sept. 30, 1970)
H.K. 19444 deals with two related subjects: (1) tax rates on amounts
charged for transportation of persons by air and permissible uses of
Airport and Airway Trust Fund moneys ("skyjacking") and (2)
statements on airline tickets and in advertising regarding the amount
of the air ticket taxes.
1. Skyjacking
Present law. — A tax of 8 percent is imposed upon the amount
paid for transportation of persons by air in the United States and a
tax of $3 is imposed upon the transportation of any person by air in
the case of international departures. These taxes are paid into the
Airport and Airway Trust Fund, created by the Airport and Airway
Revenue Act of 1970. Under present law, expenditures may be made
from the Trust Fund only for the purposes specified in the Act (sec.
208(f)). However, the Act does not permit expenditures for guards to
accompany aircraft.
Problem. — In response to the increasing occurrence and violence of
aircraft hijacking and other danger caused to airline passengers, the
Administration has decided to provide guards to accompany aircraft
operated by United States air carriers and currently is doing so.
The Administration believes, and the House agrees, that the cost
of training and providing the guards should be borne by the persons
who are being protected by the guards and that this cost should not
reduce the money available for the other purposes for which the Trust
Fund was created.
Solution proposed in the bill. — The House bill would permit Airport
and Airway Trust Fund money to be expended for the training, sal-
aries, and other expenses of guards having the same powers as United
States marshals to accompany aircraft operated by United States air
carriers. This authority extends only to obligations incurred before July
1, 1972.
To finance the cost of the guards the bill would increase the domestic
air ticket taxes from 8 percent to 8.5 percent and the international
departure tax from $3 to $5 for the period November 1, 1970, through
June 30, 1972.
Difference in two versions of the bill. — H.R. 19444 proceeds on the
assumption that the Department of Transportation has authority
to provide guards on aircraft and merely furnishes a method of
financing the exercise of the authority. S. 4383, which was the first
version of the Administration proposal and which has been referred
to the Committees on Finance and Commerce jointly, includes a
provision specifically authorizing the Secretary of Transportation to
provide such guards. The guards, in fact, are already on the planes.
Problem presented in the bill. — The bill increases the air ticket taxes
as of November 1, 1970. That date having passed, it is apparent that
a later effective date is required.
19
2. Airline tickets and advertising
Present law. — Present law prohibits the showing on an airline ticket
of the amount of the 8-percent tax; also, advertising for air transporta-
tion must not state the amount of the air ticket taxes.
Problem. — The purposes of the provision enacted as part of the Air-
port and Airway Revenue Act of 1970 prohibiting statement of the
amount of tax on airline tickets and advertising, were to assure that
air travelers would be fuUy informed as to the total cost of their
transportation and also to speed up passenger service at the airport.
However, concern has been expressed that that law may have the
unintended effect of hiding the tax from the purchaser of the ticket.
Solution proposed in the bill. — The bill would require that the airline
ticket show the total price the passenger is to pay (i.e., the total of
the amount charged for transportation plus the amount of the tax).
The bill also provides that any advertising which states the cost of the
transportation must show this same total price. The bill would remove
from the law any prohibition on additionally stating on the ticket or in
the advertising, how much of the total price is tax and how much is
the basic charge.
Problems presented in the bill. — Under the House bill provision as to
ticket taxes on advertising, it remains possible for the advertiser to
emphasize the basic fare to be charged and thereby to mislead the
potential air traveler who "fails to read the fine print". S. 4367, which
has been referred to the Committee on Finance, provides that if any
such advertising states separately the amount to be paid for trans-
portation or the amount of the tax, then it also must state the total
amount to be paid by the traveler "at least as prominently as the more
prominently stated of the amount to be paid for such transportation
or the amount of such taxes"; the House bill contains no such pro-
vision.
3. Administration position
In order to emphasize that the taxes have been set aside by law for
the benefit of the air traveler, S. 4367 would also require, in such a
case, that the taxes be described substantially as "user taxes to pay for
airport construction and airway safety and operations"; the House
bill contains no such statement.
Although the Administration's bill, S. 4383, differs from H.R. 19444
in several respects (described above), the Administration fully en-
dorses H.R. 19444.
9. Extension of Highway Trust Fund
(Title III of H.R. 19504 ')
Present law. — Under present law, revenues from a series of highway
user excise taxes are placed in the highway trust fund: the manu-
facturers' taxes on gasoline and lubricating oil for highway use, trucks
and buses, truck and bus parts, and tires, tubes and tread rubber for
highway use; the retailers' taxes on diesel and special fuels for highway
use; and the tax on use of heavy highway motor vehicles. These taxes
I The House highway trust fund bill is not yet before the Committee on Finance, but the bill is expected
to be considered on the floor of the House shortly after the recess. This discussion is based on the Ways
and Means Committee title of the House bill, as reported by the House Public Works Committee.
20
are expected to raise approximately $5.2 billion in revenue for the
trust fund in the fiscal year 1971, and $5.4 billion in the fiscal year
1972.
The trust fund is used to finance the Federal Government's share
of the Interstate System (90 percent of the cost), the ABC primary
and secondary road systems (50 percent of the cost), and certain other
highway-related programs.
The highway trust fund is scheduled to expire on September 30,
1972; that is, tax liabilities arising after that date for the highway user
taxes listed in table 1 (for those taxes that continue in eflfect) will be
paid into the general fund (as they were prior to the Revenue Act of
1956) instead of the trust fund.^
As indicated in table 1, most of the highway user taxes presently
paid into the trust fund will continue in eflfect at reduced rates after
September 30, 1972. These reduced taxes would be expected to produce
about 40 percent as much in revenues as would be derived from the
current schedule and rates of the highway trust fund taxes.'
TABLE 1.— EXCISE TAXES ALLOCATED TO HIGHWAY TRUST FUND, UNIT OF TAX BY EFFECTIVE DATE OF RATES
UNDER PRESENT LAW
Type of tax
Unit of tax
Present
rates
Rates effective
after Sept. 30,
1972
Manufacturers:
Gasoline Per gallon
Lubricating oil... _do
Trucks, buses, etc Manufacturers' price
Truck, bus, etc. parts do
Tires Per pound 10 cents Scents.
Tubes do do 9 cents.
Tread rubber do Scents None.
Retailers: Diesel fuel and special fuels... Per gallon 4 cents IJ^ cents.
Other: Highway motor vehicle use tax (vehicles over 26,000 Per 1,000 pounds $3 None.
pounds.)
4 cents 1}^ cents.
6 cents 6 cents.
10 percent S percent.
8 percent Do.
Problem. — It is apparent, from a communication from the Depart-
ment of Transportation and in testimony before the Congress,* that
the Interstate Highway System cannot be completed by the present
expiration date of the highway trust fund. Estimates indicate that
the likely completion date of the Interstate System will extend at
least until 1977 or 1978. The need for the extension of the trust fund
in order to complete the Interstate System results from the increase
in costs and also from the addition of 1,500 mUes to the system in the
1968 legislation.
The funding of the Interstate System and the ABC road systems
is of immediate concern due to the 1972 termination date of the
trust fund because of the timing involved in the apportionment
authorization procedures. Apportionment for a fiscal year of amounts
available for highway construction for the States from the trust fund
2 Taxes collected, after this date on account of pre-October 1972 liabilities will continue to be paid into the
trust fund for 9 months after September 1972 (or until June 30, 1973); however, moneys in the trust fund
can be spent for Federal-aid highways only until September 30, 1972.
3 The taxes on tread rubber and on the use of heavy highway motor vehicles are to expire after that date,
while the tax on lubricating oil wUl continue at the present rate.
* "A Revised Estimate of the Cost of Completing the National System of Interstate and Defense High-
ways," communication from the Secretary of Transportation, April 21, 1970, H. Doc. 91-317.
21
must be made by the Federal Highway Administration at least 6
months prior to the start of that fiscal year (i.e., the apportionment
for the fiscal year 1972 must be made before the end of 1970). More-
over, there must be sufficient future moneys in the trust fund to
cover later disbursements resulting from obligations due to the ap-
portionment of a fiscal year authorization. However, due to the
present 1972 termination date of the trust fund, sufficient revenues
will not be available to cover the apportionment of the total trust
fund authorizations planned for the fiscal year 1972. Further, even
the fraction of fiscal 1972 authorization amounts that could be ap-
portioned would give rise to disbursements after the September 30,
1972, cutoff date for expenditures from the trust fund.
Solution proposed in the bill. — The revenue portion of the House
bill (title III of H.R. 19504, ''The Federal-Aid Highway Act of 1970")
provides for the extension of the operation of the highway trust fund
for 5 years, generally from September 30, 1972, to September 30, 1977.
Accordingly, the rate reductions (and expirations) of the highway user
taxes allocated to the trust fund currently scheduled for October 1,
1972, are postponed for 5 years. Receipts from these taxes allocated
to the trust fund are estimated to be $30.1 billion during the 5-year
extension period, of which about $12.3 bilhon represents revenue
which otherwise would be general fund revenue during this period.
Thus, the House bill does not make any change with respect to the
current base or rate of the highway user taxes listed in table 1 .
The authorization part of the House bill extends the authorizations
for the completion of the Interstate System from June 30, 1974, to
June 30, 1978. The 5-year extension of the highway trust fund and
the taxes allocated to it, however, will provide sufficient revenues for
full-year apportionment of authorizations through fiscal year 1976 (see
table 3, H. Kept. 91-1554, p. 40).
The Senate-passed highway-aid bill (S. 4418) provides for the exten-
sion of the authorizations for the Interstate System to June 30, 1976,
but it does not contain any provision for the extension of the highway
trust fund. Both the House and Senate highway-aid bills provide that
some additional highway-related expenditures be financed from the
highway trust fund that were previously financed from the general
fund.
Problem presented in the bill. — A technical problem in the House bill
is that while the trust fund will continue to receive revenues from pre-
expiration date tax liabilities for 9 months following the expiration
date, expenditures may be made only until the expiration date (this
is the same as in present law) . The Committee may wish to make
these dates coincide (i.e., allow expenditures from the trust fund for
pre-expiration date obligations for the same 9-month period folloAving
the expiration date).
Administration position. — The administration proposed to extend
the liighway trust fund taxes from September 30, 1972, through
February 28, 1977, an extension of 4 years and 5 months. The ad-
ministration proposed also to amend the liighway trust fund pro-
visions to remove the cut-off date for making payments from the trust
fund for the purposes of the fund. The administration proposed also
to add 5 specified categories of additional programs for which trust
fund monies could be expended.
D
I
i
i
PART TWO
Miscellaneous Tariff Bills
(23)
I
I
1. Articles Intended for Preventing Conception
(H.R. 4605)
(Passed the House on June 22, 1970)
Present Law: Existing statutes completely prohibit the importation,
interstate transportation, and mailing of contraceptive materials,
or the mailing of advertisement or information concerning how or
where such materials may be obtained or how conception may be
prevented.
Problem: Court decisions have made it permissible to disseminate
contraceptive information. It has become Government policy to
foster famil}^ planning in connection v»dth foreign aid programs and
with welfare programs. The executive branch feels it would be con-
sistent with this policy if the present prohibitions on importing and
advertising contraceptive materials were modified.
House Bill: The House bill would amend section 305(a) of the
Tariff Act of 1930 to remove the present prohibition against the
importation of articles for preventing conception. It would also amend
sections 552, 1461, and 1462 of title 18 of the United States Code to
remove the prohibitions against importing, transporting, mailing, or
advertising with respect to such articles. The House bill also amends
section 4001 of title 39 of the United States Code, relating to non-
mailable matter, to limit the unsolicited mailing of articles for pre-
venting conception or of advertisements of any such articles to certain
authorized parties such as licensed physicians and surgeons, nurses,
pharmacists, druggists, hospitals and clinics.
Executive Comments: The Department of Commerce noted that
there are at least 12 domestic manufacturers of contraceptives and the
Department noted that the proposed legislation would have little if
any practical effect on the production or sale of the subject articles in
the United States. The Department does not object to enactment of
H.R. 4605. The Post Office had no objection while the Treasury was
"noncommittal." The Departments of State and Health, Education,
and Welfare support the legislation.
Stajff Comments: The staff notes that subsequent to the passage of
this legislation by the House, the Postal Reform Act modified certain
provisions of the code which this legislation affects. Therefore a
technical amendment is needed which would conform the present law
to the purpose of the House bill.
2. Duty Suspension on Manganese Ores
(H.R. 6049)
(Passed the House on June 22, 1970)
Present Law: Under present law, imports of manganese ore which
has been concentrated by roasting or sintering (generally involving
chemical change) are considered to be dutiable as "other metal-bearing
(25)
26
materials" under item 603.70 of the tariff schedules at a rate of
10 percent ad valorem; however, ores of iron, lead, copper, and zinc
which have been concentrated by roasting or sintering are defined
as ''metal-bearing ores" and the duty on which (17 cents per pound
on manganese content) is temporarily suspended.
Problem: There is little domestic production of manganese ore and
imports account for over 95 percent of total new supply in this country.
At present time imports of roasted or sintered manganese ore are
believed to be very small. It is understood, however, that deposits
of manganese ore which require roasting or sintering are being de-
veloped in Mexico. These deposits provide the primary basis for the
current concern with the dutiable status of roasted or sintered
manganese ore.
House Bill: The House bill would provide for the same type of tariff
treatment for manganese ores which have been concentrated by
roasting or sintering as now is provided for such imported ores of iron,
lead, copper, and zinc. The statutory rate of duty would be reduced
from 10 percent ad valorem to 17 cents per pound of manganese
content. By 1972 this will be reduced further to 12 cents per pound in
accordance with the Kennedy Round Agreement. However, under
Public Law 91-306 the duty on metal bearing ore has been suspended
until June 30, 1973. This bill will extend the same treatment to
manganese ore.
Executive Comments: The Departments of Treasury and Commerce
favor enactment of this bill. The Department of State has no objection
to its enactment. The Department of Interior favors enactment.
3. Bells for Smith College
(H.R. 6854)
(Passed the House on May 19, 1970)
Present Lavj: Under item 725.34 of the Tariff Schedules, a peal of
eight bells imported for use by Smith College was entered and subject
to a duty of 9 percent ad valorem.
Problem: The House report states that the committee was informed
that the peal of eight bells desired by Smith College was not available
from domestic producers. Thus, the tariff of 9 percent did not protect
any domestic industry, but merely served as adding extra costs to
the college. Similar relief measures dealing with such bells have been
enacted into law in recent years.
House Bill: The House bill would provide for duty-free entry of a
peal of eight bells for use of Smith College, Northampton, Mass.
Executive Comments: The Department of Commerce reports that
there is no domestic production of tuned bells, except musical hand-
bells. The major domestic producers of handbells and electronic
carillons have informed the Department that they do not oppose the
reduction or removal of import duties on sets of tuned bells, with this
exception of musical handbells. Secondly, the Department favors
legislation to provide duty-free entry for all sets of tuned bells known
as chimes, peals, or carillons, except musical handbells.
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The Department of the Treasury does not favor the private rehef
nature of H.R. 6854, but sees no administrative difficulty in general
legislation to provide duty-free entry for tuned bells, whether chimes,
peals, or carillons.
The Office of Management and Budget also recommends general
legislation.
4. Duty on Parts ol Stethoscopes
(H.R. 7311)
(Passed the House on August 24, 1970)
Present Law: Stethoscopes are presently dutiable under tariff
schedule item 709.10 at 13 percent ad valorem, the third stage of a
five-stage reduction from 19 percent to 9.5 percent ad valorem. Parts
of stethoscopes are presently classified under item 709.27 at 25 percent
ad valorem, the third stage of a five-stage reduction from 36 to 18
percent pursuant to the Kennedy Round agreement.
Problem: The existing differential between the dutiable status of
stethoscopes and parts of stethoscopes was created by a U.S. Customs
Court decision in 1963. The Technical Amendments Act of 1965,
reflecting this decision, reduced the rate of dut}^ on stethoscopes from
36 percent to 19 percent. Before 1965, the duty on stethoscopes and
stethoscope parts was the same.
House Bill: The House bill would provide that the rate of duty
on stethoscope parts be reduced to equal the rate of duty on stetho-
scopes. At the end of the five-stage reductions stemming from the
Kennedy Round, the rate of duty on stethoscopes and parts of stetho-
scopes will be 9.5 percent under his bill.
Executive Comments: The committee received "no objection"
reports from the Departments of Treasury and Commerce. The
Department of State favors its enactment, with a suggestion to delete
subsection (c) in order to make clear that stethoscope parts will be
subject to the same staged duty reductions agreed to for stethoscopes
in the Kennedy Round.
5. Duty-Free Treatment for Certain Sample Materials
(H.R. 9183)
(Passed the House on June 22, 1970)
Present law. — There is no specific provision for imi)orted articles
on which duties have been })aid, which are subsequently exported
and returned to the United States due to failure of the articles to
meet sample or specification in the foreign countr3^
Problem. — The House committee report indicated that in one specific
instance an article was imported and the normal duty was paid.
Thereafter, the articles were sold and exported to a customer in a
foreign country who subsequently rejected them for the reason that
they did not conform to sjjecifications. Ui:)on return to the United
States the articles were again subject to duty under the tarifi laws.
In effect this amounts to double liability for duty payment on the
same imported articles.
House bill. — The House bill would insert a new duty-free tariff
classification provision — item 801.00 — which would permit dutj'-free
entry for articles previously imported with respect to which the duty
28
was paid upon such previous importation under certain conditions.
Such articles could be entered free of duty if :
1. Exported within 3 years after the date of such previous im-
portation; 2. reimported without having been advanced in value
or improved in condition; 3. reimported for the reason that such
articles do not conform to sample or specifications; and 4. reim-
ported by or for the account of the persons who imported them
into and exported them from the United States.
Executive comments. — The Department of State and the OflEice of
Management and Budget have no objection to enactment of this bill.
The Department of Treasury submitted a noncommittal report and
the Tariff Coniaiission submitted an analysis of the bill.
Proposed Amendment. — On July 13, Senator Yarborough introduced
an amendment to H.R. 9183, which would provide that upon the ex-
portation of jet aircraft engines that have been overhauled or rebuilt in
the United States with the use of imported merchandise, there shall be
refunded the duties which have been paid on the merchandise. The
amendment is prospective and no past refunds are involved. The
Departments have not commented on the Yarborough amendment.
6. Shrimp Vessels
(H.R. 16745)
(Passed the House on June 22, 1970)
Present Law: Under section 3114 of the Revised Statutes of the
United States a vessel documented under the laws of the United States
to engage in the foreign or coastal trade, or a vessel intended to be
employed in such trade, is required to pay an ad valorem duty of 50
]-)ercent on the cost of repairs made to, and equipment purshased for.
vessels in a foreign country.
Problem: U.S. vessels which are engaged in the shrimp industry off
the northeast coast of South America generallj^ remain on station for
long periods of time (3 to 5 years). During this time necessary repairs
and equipment are obtained in nearby foreign ports because the
voyage back to the United States would involve a lengthy period of
absence from the station on the fishing grounds and comparable loss
of income for the owners, operators, and crew of a shrimp vessel. The
50 percent ad valorem tax does not prevent these repairs from being
made in foreign ports but onl3r serves as a penalty for U.S. shrimp
operators which must compete with foreign shrimp vessels.
House Bill: H.R. 16745 provides an exemption for U.S. vessels
primarily used for the catching of shrimp from the 50 percent ad
valorem duty imposed under section 3114 of the Revised Statutes
except for the purchase of fish nets and netting.
Executive Comments: The executive branch comment generally
tended to favor this legislation but suggested that it should apply to
other type U.S. vessels which have similar circumstances. The Treas-
ur}^ Department specifically singled out oil-drilling vessels as coming
within this categor}^.
Staff Comments: The Committee had been advised that the ship-
builders opposed the House bill. Subsequently, the staff was able to
work out an amendment which, in effect, would provide the duty-free
treatment for those vessels which stayed awa}^ from U.S. ports for
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more than 2 years except on any repairs made in foreign ports during
the first 6 months of any voyage. It was felt that this would insure that
the duty-free privileges would not be abused by those ships which
could otherwise use U.S. shipyards for repairs.
7. Duty Suspension on Certain Electrodes
(H.R. 16940)
(Passed the House on May 19, 1970)
Present Law: The present duty suspension on electrodes used in
]~)roducing aluminum expires on December 31, 1970. If the temporary
duty suspension is not extended electrodes used in producing aluminum
would be dutiable at 7 percent ad valorem in 1971 and 6 percent
beginning on January 1, 1972.
Problem: There appears to still be an inefficient supply of the
<^lectrodes used by aluminum companies in the electrolysis process in
transforming alumina into aluminum.
House Bill: H.R. 16940 would continue the temporary duty sus-
pension on aluminum electrodes until December 31, 1972.
Executive Comments: The Department of Commerce favors the
enactment of this bill; the Department of Treasury favors enactment
with a technical amendment. The State Department and Office of
^Management and Budget offer no objection.
8. Duty Treatment on Certain Previously Exported Aircraft
(H.R. 17088)
(Passed the House on July 6, 1970)
Present Law: Under existing law when an aircraft is produced in the
United States with foreign parts the duty on the foreign parts is
forgiven when the aircraft is exported. This residt may be accomplished
either by paying the duty and getting a drawback or refund when a
new plane is exported, or importing the aircraft parts under bond
which insures that the duty will be paid if the parts are used for
domestic au'craft. However, if au'craft sold abroad under these cir-
cumstances are returned in the future to the United States as a trade-in
on new aircraft, the aircraft taken as trade-ins wUl be subject to a
higher duty where the bonding procediu"e rather than the drawback
procedure was originally used. Under present law the entire value of
the aircraft is subject to dut}^ if the bonding procedure was used while
where the drawback procedure was used only the duty that would
have originally been owed on the foreign parts must be paid.
House Bill: The House bill would equalize the treatment of reim-
piu'ted aircraft whether or not the bonding ]:)rocodure or the drawback
l^rocedure was used. The proposed legislation would apply with
respect to aircraft the entry of which was made on or after the date
of enactment.
Executive Comments: The Department of Commerce favors enact-
ment of this legislation and suggests that if other similar cases arose
with respect to other commodities it \\'ould favor extending this
privilege to those commodities. Other Departments have offered no
comments on this legislation.
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PART THREE
Miscellaneous Veterans Bills
(31)
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1. Investment of National Service Life Insurance Trust Funds in
Veterans' Administration-Financed Housing
(H.R. 18253, S. 3008)
(Passed the House on July 20, 1970)
BACKGROUND
Growth of the Veterans' Administration home loan guarantee
program has been hampered somewhat in recent years as funds for
investment in housing have dropped. Under the VA home loan guaran-
tee program, the guarantee of the Federal Government is substituted
for the investment protection afforded under conventional mortgage
terms by substantial downpayment requirements and relatively
shorter terms of loan. Thus, eligible veterans are enabled to finance
home purchases even though they may not have the resources to
qualify for conventional loans.
Home loans may be guaranteed up to 60 percent of the amount of
the loan, with a maximum guarantee of $12,500. This guarantee makes
it extremely unlikely that a lending institution will suffer a loss if a
loan is defaulted.
Under present law, the reserves of the national service life insurance
fund are deposited in a trust fund whose assets (other than those
required for immediate operations) must be invested in U.S. Treasury
securities. It has been proposed that the yield of these assets could
be increased by investing them in VA guaranteed home loans.
LEGISLATIVE DEVELOPMENTS IN 1969
S. 3008 and H.R. 9476.— Two similar bills introduced in 1969, S.
3008 and H.R. 9476, would establish a new revolving fund, the
national service life insurance investment fund. Up to $1 billion per
fiscal year could be transferred from the national service life insurance
trust fund from fiscal year 1970 through fiscal year 1974 (a total of up
to $5 bilhon) . The investment fund could use the money to purchase
guaranteed GI loans of up to $30,000 secured by single-family
dwellings.
The national service life insurance trust fund represents the reserves
for that insurance program. The fund now holds about $6.3 billion
of investments in U.S. Treasury securities, which today yield about
4.2 percent on the average.
The Subcommittee onVeterans' Legislation held hearings on S. 3008.
in November 1969. Finance Committee action was postponed when
the House Committee on Veterans' Affairs favorably reported H.R.
9476 early in December 1969. However, the House Committee was
unable to obtain a rule on the bill. The administration opposed the bill
in the strongest terms; its opposition related to two major issues:
(1) The bill could require the Treasury to redeem securities
held by the NSLI trust fund before the securities have matured ;
(2) The investment of NSLI trust funds in housing would
represent a budget expenditure but would be outside of the
appropriation process; and
(33)
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(3) Any NSLI trust funds not invested in U.S. Treasury
securities would require the Treasury to borrow an equivalent
amount in the open market.
LEGISLATIVE DEVELOPMENTS IN 1970
When the House Veterans' Affairs Committee found itself unable to
obtain a rule on H.R. 9476, it reported out a new bill, H.R. 18253,
which passed the House on July 21. This biU met two of the adminis-
tration's major objections to the earlier bill: under H.R. 18253, the
Treasury Department could not be required to redeem any securities
before their maturity, and any investment of NSLI trust funds would
have to be authorized in an appropriation act. A more detailed
description of H.R. 18253 appears in appendix A on the following page.
ADMINISTRATION POSITION
The Veterans' Administration has not submitted a report on H.R.
18253.
AMENDMENTS FOR COMMITTEE CONSIDERATION
1. Servicing of mortgages. — Under H.R. 18253, mortgages would be
purchased by the Veterans' Administration and serviced by the
Veterans' Administration, although they would be permitted to
contract out for servicing as long as the cost was not higher than VA
administrative costs would be. Under this arrangement, the VA's
housing policy could at times differ considerably from the policy of
the Government National Mortgage Association (GNMA). It would
seem appropriate that funds be transferred for investment to GNMA
which would probably contract with the Federal National Mortgage
Association (FNMA) for actual purchasing of mortgages. The com-
mittee may also msh to require that servicing be handled in the same
way as it is handled by FNMA, through a servicing fee paid to a
mortgage banker.
2. Minimum discount rate. — Under the House bill the Veterans'
Administration is to purchase the home loan at a discount based on
recent FNMA experience, but in no case less than 96 percent of par.
In recent times the discount has been as high as 7 percent. Setting a
maximum discount of 4 percent at a time when other conventional
mortgages are discounted by a greater amount would place a sub-
stantial premium on VA-financed mortgages. For example, if con-
ventional mortgages are discounted 7 percent, any seller would prefer
to sell to a veteran because of the lower discount. The committee may
wish to consider removing the discount limitation in the bill.
3. Administrative expenses. — Under the House bill, administrative
expenses in connection with the new program would be paid out of
general funds. There appears to be little reason why administrative
expenses should not be borne from the trust funds so that the program
would be completely self-financing; in any case, the yield to the trust
funds will be s'reater than under present law.
4. Earnings oj NSLI trust /w7i(^.— Under H.R. 18253, the NSLI
trust fund, as a return on its investment, would be paid 1 percent
less than the average interest rate on loans purchased. Since the bill
requires the establishment of a reserve in the newly created NSLI
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investment fund, there appears to be no reason why the NSLI trust
fund should not be paid the full yield on investments; that is, the
interest on the loans minus administrative costs and other expenses.
Appendix A
Summary and Analysis of H.R. 18253
Summary
The bill would establish a new revolving fund, the national service
life insm-ance investment fund. Investments of the national service
life insurance trust fund maturing during each fiscal year could be
transferred from the trust fund from fiscal year 1971 through fiscal
year 1974 (the 4-year total could not exceed $5 billion). The invest-
ment fund could use the money to purchase guaranteed GI home loans
of up to $30,000 secured by single family dwelUngs.
The national service life insurance trust fund represents the reserves
for that insurance program. The fund now holds about $6.3 billion
invested either in U.S. Treasury securities, or in the investments
today which yield about 4.2 percent on the average.
Section-hy-section analysis
Page
of bill Provision
1 Section 1 of the bill estabHshes a national service life insur-
ance investment fund under a new sec. 1828 of title 38 (vet-
erans' benefits) of the U.S. Code and states what its funds may
be used for.
1-4 Section 1828 (a) authorizes VA to promise a lending institu-
tion that it will purchase a VA-guaranteed home loan made by
the lender within 6 months from the date the loan is made.
The VA comm.itment cannot be assigned by the lending insti-
tution to another party. The commitment is stated as a per-
centage of the face amount of the loan; this percentage is based
on recent FNMA experience, but it cannot be less than 96
percent nor more than 100 percent of par. A nonrefundable fee
of one-half of 1 percent of the loan is charged for the VA
commitment. The VA can purchase the loan at the price it
committed itself to only if (1) the lender has not been able to
sell the loan for at least the VA price, and (2) the lender has
not charged (and will not charge) the seller of the property more
than (a) the difterence between the VA price and the face
amount of the loan, plus (b) the fee the lender paid the VA
for VA's commitment to buy the loan. VA is directed, to the
extent practicable, to purchase loans in areas where money is
tightest.
4 Section 1828(h) estabHshes a national service life insurance
investment fund as a revohang fund to accomplish the purposes
of the bill. The investment fund may not, however, pay for
administrative costs. Investments from the NSLI trust fund
may be transferred to the investment fund until June 30,
1974, subject to these limitations: (1) The"'funds transferred
may not exceed the sum of the trust fund's investments wliich
mature in any fiscal year; (2) The cumulative transfers may
not exceed $5 billion; and (3) All transfers must be authorized
in appropriation acts.
36
Page
of hill Provision
4-6 Section 1828 {c) relates to operations involving the investment
fund.
Until June 30, 1974, all repayments will be deposited in the
investment fund, available for further purchase of loans;
interest and commitment fees shall also be deposited in the
investment fund. The national service life insurance trust fund
will be paid interest on all funds transferred from it to the
investment fund ; the interest rate shall be set at 1 percent less
than the average interest rate on loans purchased and Treasury-
securities held by the investment fund.
The VA must establish within the investment fund an
adequate reserve.
After June 30, 1975, all loan repayments and interest will be
deposited in the national service life insurance trust fund,
except an amount needed as a reserve for losses.
Any money in the investment fund not currently needed to
purchase loans could be invested in U.S. Treasury securities.
7 Section 1828 {d) authorizes the use of fxmds from the VA loan
guaranty revolving fund to make up any deficiency in the
investment fund's reserves for expenses and losses.
7 Section 1828 {e) permits the VA to sell any loan held by the
investment fund, at a price not lower than the remaining
principal on the loan (discounted by the same percentage as
the original VA discount when the loan was purchased) plus
accrued interest.
7-8 Section 1828(f) authorizes the VA to sell loans held by the
investment fund through the participation certificate method.
8-9 Section 1828(g) directs the VA to invest its funds under the
bill "in loans which will represent a broad spectrum of the
veteran homebuying population in respect to age, income and
location of the properties which will constitute the loan securi-
ties." The investment fund can only be used to purchase loans
of $30,000 or less on single-family dwellings. VA can contract
out for servicing the loans purchased as long as the cost is not
higher than it would be if VA serviced the loans themselves.
9 Section 2 of the bill is entirely unrelated to the rest of the bill.
This section prohibits the VA from making a direct loan to a
veteran in an area where private funds are available at a dis-
count not greater than either the average recent FNMA dis-
count or 4 percent, whichever is lower.
9-10 Section 3 of the bill is complementary to Sec. 1; it authorizes
the transfer of funds from the national service life insurance
trust fund to the new investment fund, and guarantees the
transfers both as to principal and interest to assure the protec-
tion of the NSLI trust fund.
How H.K,. 18253 Would Woek, Using a $20,000 Home Loan as an
Example
The veteran applies for a VA home loan at a lending institution
(say a bank), just as he does under present law.
The bank asks VA to make a commitment to buy the loan within
6 months after it is made. VA commits itself to buy the loan (if it
37
cannot otherwise be sold) at 96 percent of par, or $19,200. The bank
pays VA a nonrefundable fee of $100 (one-half of 1 percent of the
loan amount) for this commitment.
The bank either retains the loan as an investment or seeks to sell
it to a private investor for at least $19,200. If it cannot do so, it asks
VA to fulMl its commitment and purchase the loan for $19,200. VA
first insures that the seller has not been charged and will not be
charged more than $1,000 by the bank for making the loan:
The difference between the $20,000 face amount and the $19,200 VA price. _ $800
Fee paid for VA's commitment 200
Total 1,000
VA buys the loan for $19,200. The loan may either be held until
paid in full, or it may be sold again. If it is sold, VA cannot charge
less than the remaining principal (discounted as was the original VA
purchase of the loan) plus interest due since the last payment. For
example, suppose the mortgage payments have reduced the principal
from the original $20,000 to $15,000. The minimum sale price would
be $14,400 (96 percent of $15,000) plus the interest due.
2. Group Mortgage Insurance for Severely Disabled Veterans Eligible
for Special Housing Benefits
(H.R. 18448)
(Passed the House on September 21, 1970)
BACKGROUND
Under present law, disabled veterans whose disability is related to
their military service may be entitled to a grant for a "wheelchair
home" especially adapted to their needs, if they are receiving disability
compensation due to the loss or loss of use of a leg or foot. Eligible
veterans may receive a grant of half of the cost of the home, up to a
maximum grant of $12,500. The grant may be used to pay part of the
cost of building or buying such a home, or to pay up to the full cost
of remodeling an existing dwelKng to meet the special requirements of
the disabled veteran.
PROVISIONS OF THE BILL
H.R. 18448 would authorize the Administrator of Veterans' Affairs
to purchase policies from a commercial insurer to provide mortgage
protection life insurance for seriously disabled veterans who have been
granted assistance as described above.
The initial amount of the insurance could not exceed $30,000 or the
amount of the mortgage loan, whichever was lower. The amount of
the insurance would be reduced as the mortgage was amortized. The
insurance would be payable only to the holder of the mortgage loan
and no insurance would be payable if the mortgage was paid oflF prior
to the death of the veteran. No insurance protection would extend
beyond age 70.
Eligible veterans would be automatically insured unless they either
elected in writing not to be insured, or failed to furnish the Administra-
tor information on which their premiums could be based. Veterans
who elected not to be insured could later elect to be insured under
certain conditions.
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The premiums charged eligible veterans would cover only the cost
of insuring standard hves. The Government would bear the cost of
the excess mortahty attributable to the veterans' disabilities, as well
as the administrative costs. In general, the veterans' premiums would
be deducted from their compensation while the Government's con-
tributions to the cost of the insurance would be made from appropri-
ated funds.
Cost. — The Veterans' Administration estimates that death claims
under the bill would average about $1.6 milhon per year; it is estimated
that the income from premiums paid by disabled veterans would
amount to about 10 percent of this total. In addition, the VA estimates
that administrative costs would total $200,000 in the first year (during
which the program would be set up), and about $38,000 for years
thereafter. These amounts are shown in table 1 below:
Table I.— Cost of H.R. 18U8
First full year Following years
Death claims $1, 600, 000 $1, 600, 000
Premiums paid by disabled veterans 160, 000 160, 000
Government share 1,440,000 1,440,000
Administrative cost 200,000 38,000
Total Federal cost 1,640,000 1,478,000
Administration position. — The administration opposes enactment of
H.R. 18448 on the follomng grounds:
1. Wlien a disabled veteran living in a "wheelchair home" dies, his
survivors_ do not need the modifications and special features and
f acihties incorporated in the home because of the veteran's disabiUty.
Frequently the survivors do not wish to continue hving in the specially
adapted house. The Veterans' Administration's experience has shown
that with rare exceptions theses houses are readily marketable without
loss.
2. Veterans whose disability is service-connected are already eligible '
for substantial amounts of subsidized insurance: ■
(a) A disabled veteran is eligible for $10,000 in national service
life insurance, with no premium at all if he is totally disabled (as '
is the case ^vith all veterans ehgible for "wheelchair home" grants) .
(6) Disabled veterans serving after September 1965 may convert
servicemen's group life insurance to a permanent plan policy at
standard premium rates regardless of his disability. Servicemen's
group life insurance had a value of $10,000 until June of this year
when the amount was increased to $15,000.
Thus, most veterans covered by the bill who have been discharged
since Septeniber 1965 are already eligible for $20,000 or $25,000 in
largely subsidized insurance coverage.
3. H.R. 18448 is discriminatory in that severely disabled veterans
who do not qualify for "wheelchair home" grants (because their
disabihty does not affect their feet or legs) face just as great a difficulty
in purchasing insurance as the disabled veterans to whom H.R. 18448
would apply.
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